Why JPMorgan pulled back
JPMorgan's trading desk has set aside its bullish view in the run-up to the Federal Reserve's Sept. 16 policy meeting, pointing to uncertainty over the trajectory of interest rates as the primary headwind. Tyler, who heads US market intelligence, previously turned cautious in early June before a multiweek decline in stocks.
He cited three immediate pressures: ambiguity around the rate path, typical seasonal softness, and a reversal in momentum among high-flying artificial intelligence shares. He added that overall equity positioning remains mostly neutral and emphasized that the broader backdrop is still constructive, supported by economic data and corporate earnings.
What moved markets this week
Warsh said Friday in a closely watched speech that inflation is not slowing in a meaningful way, prompting traders to increase wagers on tighter policy. Tyler said markets would still be unsure about the extent and duration of the tightening cycle should the Fed lift borrowing costs, because the new chair has been less explicit than prior leaders.
Benchmark yields surged as stronger oil prices stoked bets on further tightening, with the 10-year exceeding 4.75% on Monday, a level not seen since January 2025. Derivatives markets indicate almost a 70% probability of a quarter-point increase next month. US equities slipped, led by rate-sensitive utilities, while strength in energy helped cushion broader losses. Crude advanced after the US and Iran traded strikes, the first such exchange in roughly a month. The S&P 500 fell about 0.5% around midday but remains on pace for its strongest August since 2021, up about 2.5% and set to break a two-month losing streak.
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The signals traders are watching
Tyler called Friday's employment data "will be critical," while saying the Sept. 11 consumer-price report is even more pivotal because Warsh's view is that the US is already at full employment. Economists expect the August payrolls report to show a gain of 55,000 jobs following an unexpected decline in July, a pace that would be broadly consistent with average job growth this year.
He also highlighted that September has historically been the weakest month for US stocks and flagged multiple risks, including the staying power of the AI trade and the possibility of higher rates amid sticky inflation.
The bigger picture for the bull market
"Equity bull markets tend to end with either a hiking cycle or a recession," Tyler wrote. "Currently, a recession is highly unlikely to manifest over the next few quarters," but Warsh's remarks make the Sept. 16 decision a "live meeting." In the meantime, JPMorgan's desk is "tactically cautious / neutral," anticipating choppy, sideways trading even as underlying fundamentals remain supportive.
